Nowadays, many investors choose Mutual Funds as an investment instrument for simpler and more practical reasons, especially for beginners. However, despite being a safe investment, Mutual Funds are similar to other types of investment, namely they are not free from risk.
The risks that may occur are losses and reduced value of the instrument. As an investor, it is mandatory to know the causes of these risks and anticipate them to prevent future occurrences.
In this article, we will discuss the things you can do to prevent loss. Not only that, you will also be provided with information on the causes that you can anticipate early on.
5 Causes of Losses in Mutual Fund Investments
Mutual Funds are a safe instrument and come with minimal loss risk. However, as a smart investor, you are still obliged to know the various risks of investing in Equity Mutual Funds so you can anticipate them.
As quoted from Kompas, Mutual Funds investment products are just like other types of investment, namely that there is no guarantee that you will always make a profit. The following are several causes of risk of loss in Mutual Funds investment products:
- General Shifts in the Capital Market
The reason your Mutual Funds investment does not achieve maximum profits is because of changes that commonly occur in the capital market. Every purchase of a Mutual Funds product will involve several aspects that refer to capital market risks.
These changes are also influenced by several factors, such as economic developments, domestic political policies and conditions, law and legal issues, interest rate movements, investor sentiment, and external factors such as conflicts.
- Liquidity Risk
Second, liquidity risk which can occur in all types of investments, including Mutual Funds investments. This risk means that when the custodian bank and Investment Manager cannot fulfill the disbursement of funds or liquidity of your Mutual Funds.
It should not be that difficult to disburse Mutual Funds funds. However, in some cases Investment Managers still fail to fulfill this. You need to know that the liquidity of Mutual Funds has been regulated by law for disbursement, namely a maximum of 7 days.
- Economic and Political Issues
Losses in investment can also be influenced by external aspects such as economic and political problems in a country. Economic and political problems make investment values unstable.
To overcome this cause, the government's role is needed to calm the economic and political situation. For example, when a country implements new regulations regarding Mutual Funds investment, this type of investment also needs to adapt to these new rules or policies.
- Unprofessional Investment Manager
The next cause of loss in your Mutual Funds investment is an Investment Manager (MI) who is unprofessional or lacks experience. The length of experience, knowledge, certification of an Investment Manager influences the level of investment profits you can gain.
Therefore, if the Investment Manager's professionalism is low, it is possible that the value of your Mutual Funds will also decrease. So, one of the factors in choosing the best Mutual Funds product is assessing the performance of the Investment Manager.
- Expense Risk
The last reason for less than optimal profits when investing in the Mutual Funds is because of the fees. The term for this component is expense ratio, and an investor must pay attention to this component.
These costs consist of operational costs, taxation and administrative costs borne by the Investment Manager and custodian bank. To prevent high costs, you can choose a Mutual Funds product with a low expense ratio.
Tips to Prevent Mutual Fund Investment Losses
Several reasons for not maximizing profits or returns on your Mutual Funds investment have been explained above. Therefore, you must also know tips so you can anticipate or prevent losses. The following are tips that you can do as quoted from the Glints website, namely:
- Diversify Mutual Funds Investments
The first thing you can do is the diversification process. Avoid focusing on one type of Mutual Funds or just one Investment Manager. This diversification process is done through selecting variations of Mutual Funds or Investment Managers.
For example, at one time you choose the investment type Mutual Funds A. Then, at another time, you choose the Equity Mutual Fund investment type to increase your investment by setting aside some funds to a different Mutual Funds post.
The goal is to diversify your investments better and complement each other. If Mutual Funds A's investment is negative, then investment in Equity Mutual Funds can cover this shortfall. However, this depends on your goals and investment profile.
- Try to Invest Regularly
Second tip, you can make investments periodically or autodebit. This can make it easier for you to invest. When choosing Mutual Funds investments on a regular basis, you can consult the experts first.
The way this periodic investment works is by auto-debiting the amount of funds in your account. Usually, withdrawals for Mutual Funds investments are made regularly every month.
- Stay Calm and Don't Panic
Lastly, which is no less important, is not to panic, because usually some investors will panic if the Mutual Funds portfolio experiences a decline. So, investors will sell some or all of their investments.
In fact, this method is considered a wrong step. Instead of making a profit, you actually realize a loss on your Mutual Funds investment.
Therefore, if you experience a decline in your portfolio, the thing you must do is remain calm and continue investing regularly in accordance with the targets that were set at the start.
Choose the Best Product to Avoid Various Losses
In conclusion, no one wants to experience losses in investing. Various things can be done to anticipate this. If you already understand the various causes and tips to prevent them, then it's time for you to choose the right Mutual Funds product for the opportunity to gain a higher maximum return.
One of the partners you can choose is DBS Treasures priority banking with various advantages. First, your investment will be managed by qualified and Investment Managers (MI). This certainly reduces risks based on the professionalism of MI's performance.
Second, there is product diversification to reduce the risk of decreasing the value of your Mutual Funds assets. Of course, this is in accordance with the point above, where one way to anticipate losses is the diversification process.
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Therefore, choose DBS Treasures as your Mutual Fund investment partner. For comprehensive information and how to invest, click here and gain the benefits of investing with DBS Treasures.
